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     FrontPage Edition: Tue 14 November 2006

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Banking (Amendment) Bill - First Reading in Parliament

Source: www.mas.gov.sg

Explanatory Brief: Banking (Amendment) Bill

The Minister for Trade & Industry and Deputy Chairman of the Monetary Authority of Singapore (MAS) today moved the Banking (Amendment) Bill ("the Bill") for first reading in Parliament.
The Bill will be read a second time and discussed at the next available Parliamentary sitting.
OVERVIEW
As part of its on-going review of the banking regulatory and legislative framework, MAS is introducing several new policies and measures to strengthen prudential safeguards, facilitate risk-based supervision, provide banks with greater operational flexibility and update regulations.
MAS has consulted the industry on the major policy changes and regulatory measures. A draft Bill was also released for public consultation in July 2006 and the feedback received was taken into account in finalising the Bill.
The consultation papers and MAS' response to the public consultations are published on its website.
The enactment of the Bill will give effect to these policies and measures. The key changes in the Bill are summarised as follows:
a    Strengthening Prudential Safeguards
  • revision of methodologies for limiting large exposures and related party exposures
  • introduction of an asset maintenance regime
  • amendment of the priority ranking of deposit liabilities of a bank
b    Enhancing MAS' Role in Bank Resolution
c    Facilitating Risk-Based Supervision and Allowing Operational Flexibility of Banks
  • enhancement to the liquidity risk supervision framework
d    Expanding the Regulatory Scope for Credit Card Issuance
e    Updating Regulations
  • lifting the statutory reserve fund requirement
  • qualification of the restriction on the use of the word "bank"
  • flexibility for MAS to prescribe what constitutes a deposit
  • revision of rules on the disclosure of information
STRENGTHENING PRUDENTIAL SAFEGUARDS
Several measures are proposed to strengthen the prudential safeguards for the protection of depositors.
Revision of methodologies for limiting large exposures and related party exposures
Currently, the Banking Act ("the Act") sets prudential limits on credit facilities extended by banks to a single borrower or a group of related borrowers. It also sets limits on unsecured credit facilities to parties related to the bank.
The Bill introduces a number of changes to ensure that the prudential limits remain relevant and are in line with international best practice.
The first key change is to apply the limits on all exposures (including equity and off-balance sheet exposures), instead of only credit facilities, to a single counter-party or group of related counter-parties posing a single risk to the bank.
The second key change is that MAS will recognise some common forms of credit risk mitigation adopted by banks.
To reduce the risk of contagion and non-arm's length transactions, the current limits on lending to related corporations will be widened to limit the exposures of a Singapore-incorporated bank to its substantial shareholder group(s) and exposures of a bank in Singapore to financial entities in which the bank holds a major stake.
The details of the revised exposure-based limits will be set out in a Notice to be issued by MAS at a later date.
Introduction of an asset maintenance regime
The Bill introduces a requirement for foreign full and wholesale bank branches to maintain a minimum level of eligible assets in Singapore in proportion to their liabilities.
The resolution of cross-border bank insolvencies is often complex and drawn-out, and there is usually uncertainty concerning the amount and speed of any recovery.
Such a requirement would help to improve the recovery of assets from a failed foreign bank branch in Singapore to meet the claims of Singapore depositors.
In line with MAS' risk-based approach to supervision, a higher asset maintenance requirement may be imposed on banks that pose greater supervisory concerns. The details of the asset maintenance regime will be set out in a Notice to be issued by MAS at a later date.
More.....

Source: www.mas.gov.sg Media Release 8 Nov 2006

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